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Perceived value

A look at trends in online auto insurance buying

By Phil Zinkewicz

How long ago was it that the Internet was first touted as a viable marketing tool for the property and casualty insurance industry, one that might pose a serious threat to the independent agency system? Five years ago? Ten years ago? Fifteen years ago?

However long ago, the arguments on both sides still ring loud and clear. Independent agents argued, understandably and quite pointedly, that consumers needed the assistance of an agent to make the proper choices when purchasing insurance. For many lines of insurance, that is certainly true. Agency insurance companies reaffirmed their commitment to the independent agency system, which they do periodically as they are experimenting with other marketing approaches. On the other hand, promoters of the Internet were ballyhooing this new wonder, predicting that, in the not-too-distant future, consumers would be purchasing insurance and other financial services from the cozy comfort of their living rooms, sans the independent advisor.

Only the diehard promoters of the Internet really believed that last prediction completely. The financial services industry’s plethora of products, including a great many insurance industry products and services, are far too complex for consumers to trust to their own judgment, without relying on the advice of a seasoned expert.

However, auto insurance is something else again. Most states mandate the purchase of automobile insurance. As a result, consumers have no daunting decision as to whether to purchase it. In those states with mandatory auto insurance, the minimum limits of coverage are plainly set out, and it doesn’t take a rocket scientist to recognize whether higher limits are needed, depending upon one’s financial situation. As for availability, all one has to do is cruise the Internet to find myriad vendors of auto insurance—insurance agents who are all eagerly touting their products and offering to compare the products of all their multiple carriers, and insurance companies (yes, agency companies as well).

So, these things raise a number of interesting questions. Has the sale of auto insurance via the Internet developed along the lines of previous predictions? Who is more likely to buy auto insurance over the Internet? Are independent agents, who have not yet made widespread use of the Internet for prospecting purposes, destined to be left behind in the relatively new competitive environment? And, again a question for independent agents—has the advantage of face-to-face contact with a potential insured lost some of its popularity among buyers of auto insurance?

Now comes a special report on online purchases of auto insurance authored by the Reston, Virginia-based comScore Inc., an organization that designs marketing strategies for its clients, strategies that are intended to “increase sales, reduce costs, deepen customer relationships and, ultimately, achieve superior ROI,” according to the organization. In general, comScore information (and, in particular, this report) are based on a representative panel of more than two million consumers who have provided comScore with permission to monitor their online browsing, buying and other transactional activity, using comScore’s proprietary measurement technology. Kevin Levitt, president of comScore Financial Solutions, and Susan Engleson, manager, discussed the organization’s report with Rough Notes magazine in order to address those questions.

First, we asked about the participants in the survey. “Our analysis leverages comScore’s database of passively observed online behavior, and attitudinal insights gathered by comScore from a survey conducted among more than 2,000 U.S. consumers the first week of March 2007,” said Levitt. “We think the results of our study will be of keen interest to representatives of the property and casualty insurance industry both on the company side and on the agency side.”

Interesting, indeed. The report says that, in the area of auto insurance, there has been an annual 15% growth in submitted quotes online. However, more significantly, 2006 saw a 58% increase in actual online auto insurance purchases over 2005. Consumers received more than 70 million auto insurance online rate quotes from 2004 to 2006, but they did not convert those quotes into actual purchases until last year, according to Levitt.

“Consumers are continuing to migrate toward conducting complex financial transactions online,” said Levitt. “The automobile insurers are supporting this shift with more efficient Web sites and clearer communication of the value proposition for purchasing policies online.”

In other words, online purchases of auto insurance are cheaper than other traditional methods, and many consumers are interested in saving money. Growth in the online auto insurance market continued in the first two months of this year, according to comScore. During January and February 2007, the number of quotes submitted online was up 29%, and the number of policies purchased online increased 45%, compared to the number of purchased in the same period in 2006.

In addition, according to comScore, 69% of the 2,000-plus U.S. online consumers surveyed during the first week in March said they would consider purchasing their next auto insurance policy online. Those who said they would not consider purchasing their auto insurance online indicated they would rather speak with an insurance professional personally, and others indicated they were fearful of submitting personal information on a Web site.

Said Levitt: “Information security was clearly a primary consideration for those hesitant to purchase policies online, as more than half (58%) of consumers said that guaranteed site security would increase their likelihood of purchasing online.”

Another interesting point, according to the survey, is that a significant portion of those who did not purchase online used the Internet to obtain a quote. This makes the Internet critical to all auto insurance companies, even if they don’t sell insurance online.

Now, although all this may sound dicey for independent agents who are concerned about losing market share to the Internet, Engleson was quick to point out that the survey provided some good news to those producers. “Most people don’t have a preference for purchasing channels, our survey found. However, of those that do have a preference, fully 75% prefer agents, about the same percentage who used agents to purchase. When asked why they used a local agent, consumers most frequently responded that they like having a person they can visit with or call. For those who did not use an agent, the main reasons were convenience and speed.”

Another key consideration for customers is their property insurance, said Engleson. “More than 70% of those with auto insurance also have property insurance,” she said. “Of those who have both, auto and property insurance, two-thirds use the same company for both. The most commonly cited reason for using the same company for both is discounts offered for using the same carrier.”

Asked to comment on the study, Patricia Borowski, CPIW, CAE, of the National Association of Professional Insurance Agents (PIA National) said: “The questions of whether and to what extent auto insurance sales online will grow are ones that have been pondered a great deal in recent years. It’s natural that the number of people who shop around online will grow each year, but it’s open as to whether the number of actual purchases will grow proportionately. First of all, although the number of companies advertising online is increasing, those companies are remaining selective just as they are in the regular market, so not all applicants will be accepted.

“However,” continued Borowski, “it is safe to assume that there will be some growth in online auto insurance sales in the coming years. There is population dynamics to consider. The baby boomlets (the children of baby boomers) coming out of college have been raised in the technology environment and are more secure in making purchases online. For young people with good driving records, probably the best way to secure their auto insurance is online. However, they still have to know about limits of coverage. Therefore, I believe that online auto insurance purchases will continue to increase, but there is still a long way to go. Also, I believe with the more complex insurance products, there will always be the need for the independent agent.” *

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